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A Solution to Lebanon’s Economic Crisis

(johan10/Getty Images) A currency board would stabilize the Lebanese economy. After 13 months in limbo, Lebanon finally formed a government on September 10. It is led by Najib Mikati, a billionaire and veteran politician. As prime minister, Mikati faces the daunting task of bringing Lebanon’s economy back from the dead. Lebanon’s death spiral began two years ago. After being pegged to the U.S. dollar at a rate of 1,507.5 for 22 years, the Lebanese pound’s peg broke, and a currency crisis erupted. As the pound plunged — eventually shedding 92 percent of its value against the dollar — inflation surged. In late July 2020, Lebanon became the first country in the Middle East ever to experience a bout of hyperinflation, with the monthly inflation rate hitting 53 per cent. Caught in the midst of the currency storm, banks became insolvent, and the economy collapsed. In a futile attempt to keep a lifeline of imports flowing, the central bank devised a concoction of multiple exchange rates. This massive import subsidy scheme drained over half of the central bank’s foreign-exchange reserves in two short years. What should Mikati do? He could proceed conventionally by dusting off the government’s April 2020 recovery plan. Its centerpiece was a more flexible exchange-rate regime coupled with capital controls and foreign loans accompanied by conditionality. But when introduced during currency crises in countries that suffer from weak institutions and endemic anomie, such systems have a poor record. In Lebanon, failure would be guaranteed, mirroring Argentina’s recent experiences. The only option that would bring Lebanon’s currency crisis to an abrupt halt is a currency board. Unlike Lebanon’s old pegged exchange-rate regime or Argentina’s similar ill-fated Convertibility System, which lasted from 1991 until it collapsed in 2001, a currency board issues notes and coins convertible on demand into a foreign anchor currency at a fixed rate of exchange. It is required to hold anchor-​currency reserves equal to 100 percent of its monetary liabilities. A currency board has no discretionary monetary powers and cannot issue credit. It has an exchange-​rate policy but no monetary policy. Its sole function is to exchange the domestic currency it issues for an anchor currency at a fixed rate. A currency board’s currency is a clone of its anchor currency. A currency board requires no preconditions and can be installed rapidly. Government finances, state-owned enterprises, and trade need not be reformed before a currency board can issue money. Currency boards have existed in some 70 countries. None has failed. #inline-newsletter-nloptin-614c57a024c91 .inline-newsletter-subscribe__cta label { font-size: 1.2rem; line-height: 1.5rem; color: #000000; } #inline-newsletter-nloptin-614c57a024c91 .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.45rem; color: #000000; } #inline-newsletter-nloptin-614c57a024c91 { background-color: #ffffff; border-width: 1px; border-color: #cccccc; } #inline-newsletter-nloptin-614c57a024c91 .inline-newsletter-subscribe__email-submit { border-color: #e92131; background-color: #e92131; color: #ffffff; } #inline-newsletter-nloptin-614c57a024efd .inline-newsletter-subscribe__cta label { font-size: 1.5rem; line-height: 1.7rem; color: #000000; } #inline-newsletter-nloptin-614c57a024efd .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.45rem; color: #000000; } #inline-newsletter-nloptin-614c57a024efd { background-color: #ffffff; border-width: 1px; } #inline-newsletter-nloptin-614c57a024efd .inline-newsletter-subscribe__email-submit { border-color: #eba605; background-color: #eba605; color: #ffffff; } #inline-newsletter-nloptin-614c57a024fb9 .inline-newsletter-subscribe__cta label { font-size: 1.3rem; line-height: 1.5rem; color: #dd9933; } #inline-newsletter-nloptin-614c57a024fb9 .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.5rem; color: #2d2d2d; } #inline-newsletter-nloptin-614c57a024fb9 { background-color: #ffffff; border-width: 1px; border-color: #999999; } #inline-newsletter-nloptin-614c57a024fb9 .inline-newsletter-subscribe__email-submit { border-color: #dd9933; background-color: #dd9933; color: #ffffff; } #inline-newsletter-nloptin-614c57a02505d .inline-newsletter-subscribe__cta label { font-size: 1.5rem; line-height: 1.7rem; color: #0f733c; } #inline-newsletter-nloptin-614c57a02505d .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.45rem; color: #2d2d2d; } #inline-newsletter-nloptin-614c57a02505d { background-color: #ffffff; border-width: 1px; border-color: #cccccc; } #inline-newsletter-nloptin-614c57a02505d .inline-newsletter-subscribe__email-submit { border-color: #0f733c; background-color: #0f733c; color: #ffffff; } The most notable modern currency board is Hong Kong’s, installed in 1983 to combat exchange‐-rate instability. After the fourth round of Sino‐​British talks on Hong Kong’s future, market volatility reached epic levels. Between July and September 24, a date known as Black Saturday, the Hong Kong dollar shed 24 percent of its value against the greenback. Hong Kong’s economy was in a state of panic. The chaos ended abruptly on October 15 with the establishment of the currency board. The board hasn’t missed a beat since, weathering a myriad of crises — even during Hong Kong’s recent political troubles. Estonia took less than a month to establish its currency board in June 1992. At that time, Estonia’s currency was the hyperinflating Russian ruble, and the newly independent Baltic state hadn’t yet approved a post‐​Soviet constitution. The currency board was installed, the Estonian kroon was issued, and inflation was extinguished instantly. After expressing initial skepticism, the International Monetary Fund heaped praise on Estonia’s currency board. In 1994, neighboring Lithuania adopted a currency board to cut off the central bank’s funding of government expenditures. The currency board did in fact impose fiscal discipline. Subsequently, the IMF praised Lithuania’s turnaround and economic performance as one of the best in the European Union, which it joined in 2004. In 1997, Bulgaria faced raging hyperinflation and banking crises. With the currency board installed in July, hyperinflation stopped immediately. By 1998 the banking system was solvent, money-​market interest rates had plunged from triple digits to an average of 2.4 percent, a massive fiscal deficit turned into a surplus, a deep depression became economic growth, and Bulgaria’s foreign-exchange reserves more than tripled. The IMF gave the currency board rave reviews. Today, thanks to its currency board, Bulgaria has the second lowest debt-​to-​GDP ratio in the EU, behind Estonia. Bosnia-Herzegovina installed a currency board in 1997, as mandated by the Dayton/​Paris Peace Agreement ending the civil war. In the middle of ethnic strife and economic ruin, the currency board did what currency boards do: It established stability, a prerequisite for rebuilding. The only way to end Lebanon’s nightmare and to succeed politically is for Mikati to establish a currency board. Indeed, it’s always better for one’s reputation to succeed unconventionally than fail conventionally. Jacques de Larosière is a former managing director of the International Monetary Fund, governor of the Banque de France, and president of the European Bank for Reconstruction and Development. Steve H. Hanke is a professor of applied economics at the Johns Hopkins University in Baltimore. He is a senior fellow and the director of the Troubled Currencies Project at the Cato Institute in Washington, D.C.

Why Biden’s Vaccine Mandate Fails the Constitutional Test

President Joe Biden enters a virtual coronavirus summit as part of the United Nations General Assembly from the White House in Washington, D.C., September 22, 2021. (Evelyn Hockstein/Reuters) In the name of an ‘emergency,’ the administration is invoking a 50-year-old statute of doubtful relevance to justify a sweeping and unprecedented mandate over the private sector. NRPLUS MEMBER ARTICLE P resident Joe Biden’s vaccine mandate represents a bold, unprecedented use of federal power. Despite its being advanced in the name of public health, and in the midst of a viral pandemic, it should fail because it undermines the Constitution’s balance between Congress and the president and between the federal and state governments. Congress has not vested the president with the power to govern every aspect of every office and factory in the nation, and even if it had, such a grant of sweeping power would violate the very division of authority between the national and state governments. In fact, the administration … To Read the Full Story

Joe Biden Is Worse Than Jimmy Carter

Then-president Jimmy Carter (left) and President Joe Biden (Bernard Gotfryd/Library of Congress; Tom Brenner/Reuters) The present bears similarities to the tumultuous 1970s, but this time the blame lies squarely with the president. NRPLUS MEMBER ARTICLE A mid the ongoing debacle in Afghanistan, some on the right have started making comparisons between the presidency of Jimmy Carter and that of Joe Biden. The parallels between the Iranian hostage crisis and the disaster in Afghanistan are limited, but it is notable that the hostage crisis was the unforeseeable consequence of a series of events that the U.S. was not in any real position to control (which is not to claim that Carter handled the events leading up to the fall of the Shah particularly well, on the contrary). By contrast, what is now unfolding in Afghanistan is the … To Read the Full Story

The World Might Soon Wake Up to a Far-Left Government in Germany

Social Democratic Party’s main candidate Olaf Scholz poses for a photo near a board reading “Scholz tackles it” after an election campaign event in Goettingen, Germany, September 4, 2021. (Jens Schlueter/Pool via Reuters) Fiscal responsibility and commitment to the transatlantic alliance are on the line. The clock is ticking down on political campaigns in Germany, as the general elections are scheduled for September 26. In a little over a week, Chancellor Angela Merkel’s reign comes to an end after 16 years. Germans are presented with a very simple choice. One option is a so-called moderate government led by the conservatives (CDU/CSU) in alliance with the Greens and the Free Democrats (FDP). The other option is an administration headed by the center-left Social Democrats (SPD) in coalition with the Greens and the Left Party. After a weeklong battle in April between Markus Söder, the leader of Bavaria’s Christian Social Union (CSU), and Armin Laschet, the head of the Christian Democratic Union, Germany’s conservatives placed their bet on Laschet, a Merkel-like left-leaning centrist, as their candidate for chancellor, instead of on his more popular Bavarian rival. The coalition’s establishment, which strongly pushed for Laschet, ignored the dramatically grim polls and prevailed over the conservatives’ base, which overwhelmingly favored Söder. Now they are paying the price for this decision on Election Day, likely resulting in the worst CDU result since the Second World War, as the CDU has fallen dramatically in the polls in recent weeks. The most recent polls show only 19 percent of voters planning to back the CDU, with the SPD in first place at 25 percent, followed by the Greens at 17 percent, Free Democratic Liberals at 13 percent, Alternative for Germany at 11 percent, and the Left Party at 7 percent. If indeed the SPD wins this election, it would have three options to form a government, but only two are viable. First, the SPD could form another “grand coalition” with Merkel’s successors in the CDU. However, the SPD leadership has effectively ruled out renewing this partnership after eight long years. Another option would be a coalition with the Greens and the Free Democrats: mathematically possible but not realistic. FDP leader Christian Lindner and his party made the pledge not to raise taxes but to lower them significantly, a key issue of their program, especially for middle-income voters. The last and most likely scenario for the SPD to form a new government would be an alliance with the Greens and the Left. It’s also the most dangerous option for Germany and the European Union. The Left Party is the direct descendant of the Socialist Unity Party of Germany (SED), the Marxist-Leninist ruling party of the former East Germany. Even today, some of its most prominent political figures were active in the SED regime or particularly in the Stasi, the former Ministry for State Security, the most feared institution of the East German Communist country. The Left Party calls for an end to all Bundeswehr (German army) missions abroad, a stop to all German weapons exports, a shutdown of the NATO alliance, and a replacement of NATO with a new system that includes Russia and China. #inline-newsletter-nloptin-614c5dce87897 .inline-newsletter-subscribe__cta label { font-size: 1.2rem; line-height: 1.5rem; color: #000000; } #inline-newsletter-nloptin-614c5dce87897 .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.45rem; color: #000000; } #inline-newsletter-nloptin-614c5dce87897 { background-color: #ffffff; border-width: 1px; border-color: #cccccc; } #inline-newsletter-nloptin-614c5dce87897 .inline-newsletter-subscribe__email-submit { border-color: #e92131; background-color: #e92131; color: #ffffff; } #inline-newsletter-nloptin-614c5dce879e0 .inline-newsletter-subscribe__cta label { font-size: 1.5rem; line-height: 1.7rem; color: #000000; } #inline-newsletter-nloptin-614c5dce879e0 .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.45rem; color: #000000; } #inline-newsletter-nloptin-614c5dce879e0 { background-color: #ffffff; border-width: 1px; } #inline-newsletter-nloptin-614c5dce879e0 .inline-newsletter-subscribe__email-submit { border-color: #eba605; background-color: #eba605; color: #ffffff; } #inline-newsletter-nloptin-614c5dce87a4f .inline-newsletter-subscribe__cta label { font-size: 1.3rem; line-height: 1.5rem; color: #dd9933; } #inline-newsletter-nloptin-614c5dce87a4f .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.5rem; color: #2d2d2d; } #inline-newsletter-nloptin-614c5dce87a4f { background-color: #ffffff; border-width: 1px; border-color: #999999; } #inline-newsletter-nloptin-614c5dce87a4f .inline-newsletter-subscribe__email-submit { border-color: #dd9933; background-color: #dd9933; color: #ffffff; } #inline-newsletter-nloptin-614c5dce87ab9 .inline-newsletter-subscribe__cta label { font-size: 1.5rem; line-height: 1.7rem; color: #0f733c; } #inline-newsletter-nloptin-614c5dce87ab9 .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.45rem; color: #2d2d2d; } #inline-newsletter-nloptin-614c5dce87ab9 { background-color: #ffffff; border-width: 1px; border-color: #cccccc; } #inline-newsletter-nloptin-614c5dce87ab9 .inline-newsletter-subscribe__email-submit { border-color: #0f733c; background-color: #0f733c; color: #ffffff; } In addition, the Left Party aims to impose a wealth tax of 5 percent on assets over 1 million euros, as well as a “wealth fee” of 10 to 30 percent on assets over 2 million euros, to pay for more government spending and relief related to the coronavirus pandemic. The party promises a minimum income of 1,200 euros per month and a child-support payment of 630 euros. Olaf Scholz, the SPD’s candidate for chancellor, is doing so well because he is a very likable person and perfected Merkel’s way of doing politics. He never mentions hard facts or touches on controversial topics and says a lot without really saying anything. “The guy everyone likes best is the most boring guy in the election — maybe in the country,” according to a recent report in the New York Times. Scholz “makes watching water boil seem exciting.” But it’s crucial to shine a light on the SPD leadership in candidate Scholz’s shadow to understand the party’s left-wing tendencies: Kevin Kühnert, Saskia Esken, and Norbert Walter-Borjans. They were elected as party leaders in 2019 and are currently hiding so as not to endanger the good polls and upcoming elections. Kühnert publicly questioned the concept of property rights, saying that “without collectivization, an overcoming of capitalism is unthinkable,” and asking, “With what right does someone have to have more than twenty apartments?” He also advocated nationalizing BMW, one of Germany’s largest car manufacturers. Esken and Walter-Borjans support Kühnert’s position and also want to introduce a wealth tax similar to that proposed by the Left Party. In her last speech to the German Parliament before the election, even Merkel warned of a leftist coalition — a very unusual move for her. She has not campaigned for the CDU until recently. During the 16 years of a so-called conservative lead government, Merkel repositioned her CDU from being a center-right party under chancellor Helmut Kohl to a center-left force in German politics, scooping up ideas and strategic issues from other parties, including the Greens. During the euro crisis, she sacrificed Germany’s financial independence and stability to support the failing economies of Greece, Portugal, and other southern European countries. After the catastrophe in Fukushima, Merkel decided to end nuclear-energy production in Germany and started the “Energiewende” (energy transition), relying exclusively on renewable sources for energy. This non-strategy has lead to the highest energy prices in Europe and is not workable for a highly industrialized nation such as Germany. Lastly, since 2015 Merkel has allowed more than 1 million refugees to enter and permanently stay in Germany, a highly controversial decision that has not only changed the social structure and security situation in Germany but is extremely expensive, given the massive promises of the German welfare state. It has also led to the rise of the far-right party Alternative for Germany. The global and European implications of a far-left government in Germany would be severe. A new government of SPD, Greens, and the Left Party would support a waiver of intellectual-property rights protections for COVID-19 vaccines, hurting the innovative pharmaceutical industries in Germany. A far-left government would not object to higher debt nationally or in the European Union. In a move similar to the French model, the government would likely introduce harmful trade barriers, including digital-services taxes on American companies. Russia and China would gain more influence in Europe, and the special transatlantic friendship Germany currently has with the United States would be at risk. The current situation is dire, and Germany desperately needs a conservative-led government in a coalition with the Free Democrats to meet challenges posed by past polices and to focus on current problems, including the coronavirus pandemic. It needs far-reaching reforms to enable the country to compete with China effectively. Germany needs to advocate for fiscal stability and sovereignty within the European Union, especially now that the United Kingdom has left. Current polls show that to be an unlikely outcome. Given that an entire generation of Germans has come of age with no living memory of the Communist period, one might wonder: Do things really have to get much worse before they get better?

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New Poll Shows Majority of Americans Lack Confidence in Biden’s Immigration Policy

President Joe Biden participates in a meeting of the Major Economies Forum on Energy and Climate (MEF) on climate change, from an auditorium at the White House in Washington, D.C., September 17, 2021. (Jonathan Ernst/Reuters) Amid the spiraling border fiasco in Del Rio, Texas, where over ten thousand undocumented migrants have been camping under a bridge while waiting to be processed by border personnel, a new poll shows that 56 percent of Americans don’t trust President Biden to make wise immigration policy decisions. Thirty-seven percent of Americans are “not at all confident” while 20 percent are “not too confident” in Biden’s handling of the immigration issue, according to a Thursday survey conducted by Pew Research. Biden’s approval for immigration policy-making dropped seven percent among Republicans, twelve percent among Democrats, and ten percent among Independents from March 2021 to September 2021, the poll indicates. An estimated 600,000 migrants have been released into the United States this year with notices to appear or report. Many of the migrants have been admitted under the refugee umbrella despite lacking legitimate clams to asylum. Hundreds of thousands more have been recorded as “got-aways” who escaped into the country without any processing. Among the blunders likely factoring into Biden’s low confidence rating on the immigration issue is the current situation in Del Rio, Texas, where overwhelmed Border Patrol agents have been struggling to apprehend and process thousands of mostly Haitian migrants streaming across the border. During a visit Saturday, Republican Representative August Pfluger noted that nearly 15,000 migrants had gathered at the port of entry, up from 12,000 just the day before, with “hundreds more gathering every hour.” #inline-newsletter-nloptin-614cee0b44930 .inline-newsletter-subscribe__cta label { font-size: 1.2rem; line-height: 1.5rem; color: #000000; } #inline-newsletter-nloptin-614cee0b44930 .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.45rem; color: #000000; } #inline-newsletter-nloptin-614cee0b44930 { background-color: #ffffff; border-width: 1px; border-color: #cccccc; } #inline-newsletter-nloptin-614cee0b44930 .inline-newsletter-subscribe__email-submit { border-color: #e92131; background-color: #e92131; color: #ffffff; } #inline-newsletter-nloptin-614cee0b44b08 .inline-newsletter-subscribe__cta label { font-size: 1.5rem; line-height: 1.7rem; color: #000000; } #inline-newsletter-nloptin-614cee0b44b08 .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.45rem; color: #000000; } #inline-newsletter-nloptin-614cee0b44b08 { background-color: #ffffff; border-width: 1px; } #inline-newsletter-nloptin-614cee0b44b08 .inline-newsletter-subscribe__email-submit { border-color: #eba605; background-color: #eba605; color: #ffffff; } #inline-newsletter-nloptin-614cee0b44be6 .inline-newsletter-subscribe__cta label { font-size: 1.3rem; line-height: 1.5rem; color: #dd9933; } #inline-newsletter-nloptin-614cee0b44be6 .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.5rem; color: #2d2d2d; } #inline-newsletter-nloptin-614cee0b44be6 { background-color: #ffffff; border-width: 1px; border-color: #999999; } #inline-newsletter-nloptin-614cee0b44be6 .inline-newsletter-subscribe__email-submit { border-color: #dd9933; background-color: #dd9933; color: #ffffff; } #inline-newsletter-nloptin-614cee0b44d15 .inline-newsletter-subscribe__cta label { font-size: 1.5rem; line-height: 1.7rem; color: #0f733c; } #inline-newsletter-nloptin-614cee0b44d15 .inline-newsletter-subscribe__cta p { font-size: 1.05rem; line-height: 1.45rem; color: #2d2d2d; } #inline-newsletter-nloptin-614cee0b44d15 { background-color: #ffffff; border-width: 1px; border-color: #cccccc; } #inline-newsletter-nloptin-614cee0b44d15 .inline-newsletter-subscribe__email-submit { border-color: #0f733c; background-color: #0f733c; color: #ffffff; } Migrants constructed temporary encampments under the bridge by the Rio Grande river as shelters, while officials sent toilets, water, medical supplies and other humanitarian aid. “Speaking to Border Patrol agents, the worst is yet to come, they’re worried about what is behind here, they’re worried about co-ordination with Mexico,” Pfluger told Fox News. “It’s worse than you could imagine,” he added. 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